Temecula's Real Estate Blog

Will The “New” Government Program Save Real Estate Foreclosures?

Will the new government program help prevent real estate foreclosures?

Our beloved leaders have a new program coming out April 5^th. The idea of the program is that it set guidelines and offers cash incentives for homeowners, loan services and mortgage investors for processing and completing short sales for deeds-in-lieu of foreclosure. They have coined it HAFA, or HAMP, or HANK, or HAM SANDWICH…. or whatever cute little acronym they can come up with. It stands for Home Affordable Foreclosure Alternatives or HAFA (which is short for “it won’t work”).

For those on a lengthy European vacation or a prison term, a short sale is a process by which a homeowner can sell their home at its market value while the lien holder writes off the loss on the balance. Without this process, the only outcome for those who can no longer afford their home is foreclosure.

The crazy part about a short sale, is that it usually takes a bank or loan services several months to decide if they will allow the short sale and for what value. Simply put, through either inept management systems, or lack of competent employees, most lenders just cannot handle the system as it is set up.

One of the key features is that once the new program is in effect, it is up to the loan servicers to develop their own policies to implement it. Really? They cannot even handle their own systems, much less add a new one.

So, the service is apparently supposed to notify the delinquent homeowner of their options within 2 weeks so they can decide if they want to apply. Once they apply, then the service is supposed to get a 3^rd party opinion of value and determine what their bottom line amount is that they or the investor will accept. (this is not unlike how it currently occurs). The new part is that ONCE the service or bank decides they will accept a short sale, they enter into an agreement with the homeowner that has a 4 month expiration date. The kicker is that the first part still has no time limits, just like our current nightmare. The fact that they take forever just to decide is the problem, not how long it takes once they have decided!!

Oh wait…it gets better! This program will give the homeowner up to $1500 for relocation expenses once the sale is complete. Woo Hoo! Most homeowners have been able to live rent free for the past several months of the process. I think most people would gladly take nothing if they new the process would be quick and painless. The servicer get paid up to $1000 for admin costs and investors can be reimbursed up to $1000 just for allowing a second lien holder $3000 to release their lien.  So, after a lender has lost nearly ½ its loan amount, we compensate them with pennies for admin costs? And most lenders currently give a second lien holder $3000 to release the lien, and that tiny amount is exactly why most second lien holder WON’T agree to the short sale.

Here’s my crazy idea to speed this up: Once a borrower is 120 days delinquent, it is readily apparent that foreclosure is coming. Once the borrower agrees to the short sale, how about if our administration REQUIRES the lender to accept it? Naturally, we’d have to have the 3^rd party opinion of value to set the price. Buy, why is it necessary for a homeowner to qualify? They’ve already stopped paying and the damage is already being done to their lives.

Once they lose the home to foreclosure, they won’t be buying again for some time. If the lender doesn’t approve the homeowner’s hardship, they end up getting the house back anyway. That is why that step is nonsense. Once the application is in, require the lender to determine the value and accept it within 30 days. Then place the property on the market and allow another 90 days to consummate the sale. If it hasn’t sold by then, then they can foreclose. If the Government set a time period window for this program, say maybe two years, wouldn’t we stop most of the bleeding by then?

But…who knows…I may not understand the Government’s plans at all …. I’m only a broker.